Needham starts coverage of Klarna at 'hold'; shares up

** Shares of buy now, pay later lender Klarna KLAR.N up 1.8% to $46.32 early Tues as Needham initiates with 'hold' rating, saying risk-reward is currently balanced

** Needham becomes first brokerage to start coverage, per LSEG, since the Swedish fintech's U.S. debut last week after ~$1.4 bln IPO priced at $40

** Klarna is a global leader in the BNPL space with $114 bln in gross merchandise volume, Needham analyst Kyle Peterson writes in note, adding he likes co's full banking license which provides a competitive edge on funding

** However, he points out that Klarna in May stated it planned to start re-hiring customer service agents, and says he's concerned this course reversal on artificial intelligence will take an 'AI premium' out of the shares, and could crimp margin expansion

** While Klarna generated significant attention when it supplanted Affirm AFRM.O as a partner to Walmart WMT.N, which Peterson says should help top-line growth, he thinks "it will actually be a net negative for KLAR given Walmart's notoriously tough negotiations with partners and the fact that KLAR gave 15 million warrants to Walmart (strike of $34) to 'seal the deal'"

** From a valuation perspective, Peterson says KLAR shares are trading at 56x FY27 P/E, saying co's growth outlook and improving profitiability are largely priced in

** Goldman Sachs, JP Morgan and Morgan Stanley were among a 15-firm underwriting group for Klarna's IPO, and will be permitted to issue research reports next month after the industry-standard quiet period ends